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Recent US and EU sanctions developments- Update on US and EU sanctions

Upcoming suspensions of certain US and EU sanctions on Iran: Road map to Implementation Day

The US Department of State reported on 28 December 2015 that Iran has made significant progress toward completing its key nuclear commitments under the Joint Comprehensive Plan of Action (JCPOA).

As agreed in the JCPOA, Iran must complete certain nuclear-related steps in order to reach Implementation Day, the next major milestone in the JCPOA, which will lead to the suspension of several US and EU sanctions (see our client briefing from July 2015 for the description of sanctions measures to be lifted upon Implementation Day).

Iran’s steps include, among others:

modernising of the Arak heavy water research reactor to support peaceful nuclear research and removal of existing calandria;

making available to the international market all heavy water exceeding the amounts needed for the modernised Arak research reactor;

reducing Iran’s enrichment capacities;

conducting enrichment research and development in a manner that does not accumulate enriched uranium; and

converting the Fordow Fuel Enrichment Plant (FFEP) into a nuclear, physics and technology centre and encouraging international research collaboration.

The completion of each of these nuclear commitments under the JCPOA will be verified and confirmed by the International Atomic Energy Agency (IAEA) in a final report. These commitments would increase to one year Iran’s breakout time to obtain enough nuclear material for a weapon, up from less than 90 days before the JCPOA.

Iran took a significant step toward fulfilling its commitments on 28 December 2015, when a ship departed Iran transporting over 11 tonnes of low-enriched uranium materials to Russia. The shipment included the removal of all of Iran’s nuclear material enriched to 20 per cent that was not already in the form of fabricated fuel plates for the Tehran Research Reactor. The IAEA now must verify that, following this transport, Iran’s enriched uranium stockpile is 300 kg or less.

The IAEA continued its own preparations to implement a comprehensive monitoring and verification regime of Iran’s entire nuclear program, as specified in the JCPOA. By Implementation Day, all of Iran’s declared nuclear facilities, including its uranium mills and centrifuge production facilities, will be under JCPOA-required expanded monitoring. The IAEA will also employ modern technologies, such as electronic seals, in these monitoring efforts and will have an increased number of inspectors on the ground in Iran.

It is reported that Iran is moving quickly to achieve all other key nuclear steps, with the aim to obtaining a confirmation by the IAEA that all measures under the JCPOA required for Implementation have been taken in the first quarter of 2016. The EU and the United States are also preparing for Implementation Day and the suspending of sanctions specified by the JCPOA. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has stated that it will issue detailed guidance on how the sanctions suspensions will operate prior to Implementation Day but has not yet announced an issuance date.

The Obama Administration announced on 30 December 2015 potential new sanctions targeting Iran’s ballistic missile program, developed partly in response to a 10 October 2015 missile launch by Iran. As of today’s date, the missile-related sanctions have not been imposed. The Obama Administration has stated that the missile-related sanctions will not impact the implementation of the JCPOA sanctions suspension.

Sanctions on Russia: Recent developments

EU sanctions

On 18 December 2015 the EU Council extended its sectoral sanctions against Russia and its financial, energy and defence sectors for six months until 31 July 2016. Any termination of EU sectoral sanctions against Russia is linked to the completion of certain steps by Russia as agreed in the Minsk agreements such as, inter alia, a cease-fire in parts of Donetsk and Luhansk, the withdrawal of heavy weapons by Ukrainian and separatist troops, comprehensive talks and preparation and holding of local elections and a constitutional reform in Ukraine, including the adoption of a new constitution by the end of 2015. These steps have not yet been completed.

Other time-limited EU sanctions against Russia refer to restrictions on goods originating in Crimea or Sevastopol. These sanctions will expire on 23 June 2016 unless extended by the EU Council in due time. It is expected that a decision on a potential extension will be taken by the EU Council in spring 2016.

US sanctions

On 22 December 2015, OFAC added a number of individuals and entities to its list of Specially Designated Nationals (SDN list), and added several entities to the US Sectoral Sanctions Identifications List (SSI list). Many of the additions to the SDN list are noted as being linked to entities already on the SDN list, and all the entities added to the SSI list are linked to Rostec, Sberbank of Russia or VTB Bank OAO. This updated SSI list also includes several EU subsidiaries of Russian financial institutions.

OFAC’s press release noted that the new designations are part of an effort to ‘counter attempts to circumvent these sanctions, further align US measures with those of its international allies, and provide additional information to assist the private sector with sanctions compliance’. Several of the entities added to the SDN list were previously designated under EU sanctions.

The ‘linked’ entities, including the EU subsidiaries of Russian financial institutions now included on the SSI list, were already targeted under the US sanctions on Russia. These entities are owned 50 per cent or more by one of the individuals or entities on either the SDN list or the relevant targeting category, or Directive, of the SSI list. OFAC stated in its press release that it provided these names in order to assist with compliance by specifying certain entities that OFAC knows to be owned 50 per cent or more by targeted individuals or entities.

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